Crown Castle Inc (CCI) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International third quarter 2007 earnings conference call. During today's presentation, all party will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS)

This conference call is being record today, Wednesday, October 31st of 2007.

I would now like to turn the call over to Jay Brown, Treasurer. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us as we review our third quarter 2007 results. With me on the call this morning are John Kelly, Crown Castle International's Chief Executive Officer, and Ben Moreland, Crown Castle International's Chief Financial Officer.

This conference call will contain forward-looking statements and information based on management's current expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Information about the potential risk factors that could affect the company's financial results are available in the press release and in the risk factors sections of the company's filings with the SEC. Should one or more or other of these risks and uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. In addition, today's call includes discussions of certain non-GAAP financial measures including adjusted EBITDA, recurring cash flow and recurring cash flow per share. Tables reconciling such non-GAAP financial measures are available under the investor's section on the company's website at crowncastle.com.

As you know, on January 12th, 2007, we closed the merger with Global Signal. The reported results for the third quarter 2007 include the effect of the merger, which are compared in certain cases to pre-merger historical results of Crown Castle for the prior periods. During the call this morning we will refer to the proforma results for the three months ended September 30th, 2006, and the nine months ended September 30th, 2006 and 2007, which are also included on page 5 of our third quarter earnings release that we put out last night. The proforma results combine the results of Crown Castle and Global Signal as of the beginning of the periods presented.

With that, I'll turn the call over to Ben.

Thanks, Jay, and good morning, everyone.

As you've seen in our press release we reported solid quarter results and are pleased the share some of the highlights with you this morning. During the third quarter we generated revenues of $351.7 million, which was comprised of site rental revenue of $326.8 million, up $147.8 million or approximately 82.6% compared to the third quarter of 2006. Service revenue was $24.9 million. Proforma site rental revenue growth was approximately 7.3% compared to reported third quarter 2007 results to proforma third quarter 2006 results, exclusive of approximately $1.1 million and$6.5 million of out of run rate items in the third quarter of 2007 and the third quarter of 2006 respectively. Gross margin from site rental revenue, defined as tower revenues less cost of operations, was $214.9 million, an increase of $91.2 million or up 73.7% from $123.7 million in the third quarter of 2006. Proforma site rental gross margin increased to approximately 10% comparing third quarter 2007 results to proforma third quarter 2006 results, exclusive of the previously mentioned out of run rate site rental revenue. Adjusted EBITDA for the third quarter 2007 was $195.8 million, an increase of $85.5 million or up 77.5% from the third quarter of 2006.

Capital expenditures during the quarter were $66.3 million, sustaining capital expenditures totaled 5.6 million and revenue-enhancing and revenue-generating capital expenditures were approximately $60.7 million. This was comprised of approximately $34.7 million of land purchases, $11 million related to the addition of new tenants on existing sites and about $15 million from new sites. Recurring cash me defined as adjusted EBITDA less interest expense and sustaining capital expenditures was $100.8 million, inclusive of approximately $18.9 million of additional interest expense on the $1,150,000,000 of borrowings in the fourth quarter of 2006 and the first quarter of 2007, to reduce actual and potential shares outstanding by approximately $33.7 million compared to $61.6 million in the third quarter of 2006 . Recurring cash flow per share was $0.36 cents per share for the third quarter of 2007, again inclusive of negative $0.02 of dilution from the previously-mentioned borrowings used to reduce the potential and actual shares outstanding, compared to $0.31 per share in the third quarter of 2006. Exclusive of the dilution I just mentioned, recurring cash flow per share grew approximately 23% year over year.

As we have previously stated, the additional borrowings to reduce the share count over the past year had a short-term diluted impact to recurring cash flow per share. But we believe these actions we have taken will deliver long-term growth in this measure consistent with our long-term objective to grow recurring cash flow 20 to 25% annually. Sequential growth and recurring cash flow per share from the first quarter of 2007 to the third quarter of 2007 was 20%, and illustrates the expected annual growth and recurring cash flow per share with a static capital structure.

Turning to the balance sheet, as of the end of the third quarter securitized tower revenue notes totaled $5.3 billion for the quarter, and other debt totaled approximately $712 million, for a total debt at the end of the quarter of approximately $6 billion. The other debt comprised -- was comprised of our corporate credit facility, which has drawn $648 million and $64 million of our 4% convertible notes. We also had $313.6 million outstanding on the 6.25 convertible preferred stock outstanding as of the end of the quarter. Total debt to latest quarter annualized adjusted EBITDA at the end of the third quarter was 7.7 times, and adjusted EBITDA to interest expense as of the end of the third quarter was 2.2 times.

As you've seen in our previous filings, the $5.3 billion of securitized notes are not subject to interest rate fluctuations for 10 years from their respective initial issuances, due to the hedges we have undertaken on the anticipated refinancing dates of each of the issues. At quarter end, we had approximately $120 million of cash, excluding restricted cash, and $250 of availability under our revolving credit facility.

Moving to the outlook for the fourth quarter of 2007, we expect slight revenue rental growth for the fourth quarter of between 300 and -- site rental revenue for the fourth quarter between 330 and $338 million. We expect site rental gross margin for the fourth quarter of between 218 and $223 million, and we expect adjusted EBITDA for the fourth quarter of between 202 and $207 million, and interest expense of between 88 and $90 million. We expect sustaining capital expenditures to be between 6 and $8 million, thus recurring cash flow is expected to be between 106 and $111 million for the fourth quarter. We expect site rental revenue for the full year of 2008 to be between $1,377,000,000 and $1,392,000,000. We expect 2008 site rental gross margin of between 930 and $940 million, and we expect 2008 adjusted EBITDA to be between 850 and $862 million, which is approximately 14% growth in adjusted EBITDA year-over-year, and interest expense of between 355 and $360 million. We expect sustaining capital expenditures to be between 21 and $26 million, and this 2008 outlook translates into expected recurring cash flow for the full year of 2008 of between 474 and $484 million, or approximately $1.70 per share, based on the 282.6 million shares outstanding for the 3 months ended September 30, 2007. The expected 2008 recurring cash flow per share of approximately $1.70 is a 25% increase from the expected $1.36 for the full year 2007.

Our 2008 outlook implies approximately $100 million of annual site rental revenue growth, $100 million of annual site rental growth margin gross and $100 million of annual adjusted EBITDA growth. We believe there are many variables that could potentially drive additional growth for this outlook in 2008, it's just too early to tell. But we are pleased with the fact that our 2008 outlook, which is based on revenue growth and leasing growth at the same rate as we expect to finish 2007, translates into approximately 25% annual growth in recurring cash flow per share, or the top end of our previously stated long-term goal of 20 to 25% growth in recurring cash flow per share.

Over the past few years, we've made many significant investment decisions, most notably the purchase of approximately 30% of our fully diluted outstanding shares since 2003 and the acquisition of Global Signal, which closed in January of this year. Due to the solid performance of our core tower business and the diligence we have demonstrated through refinancing our balance sheet and purchasing a substantial amount of our actual and potential shares outstanding, we have positioned ourselves to effectively translate core tower business revenue growth into recurring cash flow per share growth. Consistent with our past actions, we expect to continue to use our recurring cash flow and the additional borrowing capacity we're now generating to make investments based on their impact to the long-term recurring cash flow per share. We have not included the impact of these potential investments in our outlook. As of the third quarter 2007, our debt to adjusted EBITDA ratio was 7.7 times and our interest coverage level had increased -- EBITDA divided by interest expense had increased to 2.2 times, implying that we are now creating borrowing capacity within our targeted leverage ratios.

As we look to the balance of 2007 and into 2008, you should expect us to continue to invest our recurring cash flow and borrowing capacity towards the high end of our leverage range, 6 to 8 times, in order to make investments based upon their long-term impact to recurring cash flow per share. Although the credit market environment has been less favorable, as over the last couple of months, we continue to believe we have access to the credit markets at our targeted level of leverage based upon the quality and predictability of our cash flows. While credit spreads for additional debt, new debt we would take on, have widened out by approximately 70 to 100 basis points, we continue to believe that prudent leverage at our current levels enhances our long-term expected equity returns. Potential investment opportunities include stock purchases, land acquisitions, tower builds, tower acquisitions and other revenue-generating investments around our core tower business. Again, we are pleased with the results for the quarter and look forward to a strong finish in 2007.

With that I'm pleased to turn the call over to John

Thanks, Ben, and thanks to all of you for joining our call this morning.

We had another solid results in the third quarter as we exceeded the midpoint of our outlook for site rental revenue, site rental gross margin, adjusted EBITDA and recurring cash flow. I'd like to make a few comments about some recently reported wireless industry statistics and the spectrum options, both the ones in 2006 and the ones coming up in 2008, and also give you a brief update on our integration efforts before I turn the call over for questions. I'm pleased with the third quarter performance. As Ben walked through the numbers with you, I believe we reported very solid results at the high end of our operating targets, and the backdrop for this performance is the continued growth in the broader wireless market.

As many of you are aware, CCI just released its semiannual wireless industry survey. I would like to take a few minutes to discuss those broader wireless industry statistics that I believe are critical because of the effect they have on the growth of the tower industry. The first one is that wireless subscribers were up to approximately 243 million for the first half of 2007. That's up approximately 24 million subscribers, or 11% from the first half of 2006, which is in line with the consistent growth we've seen in recent years. Now, more importantly than wireless subscribers increasing, wireless minutes of use exceeded 1 trillion minutes of use in the 1st half of 2007, an 18% increase from the 1st half of 2006. In my opinion, an unbelievably large increase on a percentage basis, given that the base is so large.

A very interesting statistic also out with this report is that wireless data service revenues for the first half of 2007 rose to $10.5 billion, which represents a 63% increase over the 1st half of 2006, when data revenues were $6.5 billion. Wireless data revenues now account for 15.5% of all wireless service revenues, which is a significant increase from the approximately 4% that wireless data revenues were of total wireless service revenues in 2004, now up to 15.5%. Another staggering statistic, there were 28.8 billion text messages reported in the month of June 2007 alone. That is almost 1 billion text messages sent a day, which represents an increase of 130% over June 2006. And then, finally, wireless subscribers sent 2.6 billion multimedia messages in the first half of 2007, almost as many as were sent in all of 2006.

I believe these statistics reinforce and substantiate the overarching trend we are experiencing of the migration from wireline telephony to wireless telephony which we talked about on prior calls. With this trend, we believe the need for towers will continue to increase, as carriers continue to require infrastructure to build up their wireless networks to support these data center and bandwidth-intensive applications. I'll give a few specifics for our expected 2008 growth. One of the big changes in 2008 from 2007 is that the clearing process for the AWS spectrum that was auctioned by the FEC in 2006 is well underway, and we believe that the leasing pipeline should continue to grow for the balance of this quarter, in 2007 fourth quarter, and into 2008 as a result of this AWS spectrum being deployed by companies like T-Mobile, Leap and Metro PCS. I believe it's likely we will start seeing the impact of site rental revenues from these activities in the first quarter of 2008. Clearly, leasing that occurs in the fourth quarter 2007 does little for revenues in 2007, but will have an impact, we believe, starting in the first quarter of 2008.

Longer term, we're also looking forward to the results of the SEC's upcoming 700 megahertz auction, which is expected to begin in January 2008. We believe that whatever the outcome, the auction of this prime band of spectrum will have a positive effect on the tower industry. Our assets are the best located in the tower industry, with 72% of our portfolio in the top 100 BTAs, and as such, we believe we are in a favorable position to partner with the ultimate winners of the auction to deploy their new networks or deploy new applications using the spectrum on sites in place today. Although the television broadcasters currently using the spectrum are not required to fully transition to digital television until February of 2009, Crown Castle is spending time currently working and proactively planning with our customers to determine how to best meet their needs and to have sufficient colocation options available to them in deploying the new 700 megahertz spectrum.

We believe we're extremely well positioned for the growth opportunities in 2008 and beyond due to our considerable progress on the Global Signal integration. We've made significant progress since January on the integration in a number of areas, including operations, IT, property management, accounting and human resources . I'm very pleased with the remarkable progress our integration teams and, quite frankly, all of our employees have made during this transitional time, and we expect to be substantially complete with the integration effort by the end of the year. We've also realized, as a result of all the integration efforts to date, we've realized annualized run rate G&A synergies, comparing full year 2006 to annualized third quarter 2007, are more than double our original estimates. These synergies are included in our 2008 outlook. Thus far, the results from the Global Signal acquisition have exceeded our expectations for revenue growth, synergies and the resulting benefit to adjusted EBITDA.

So before I turn the call over for questions, I want to reinforce that we reported a great quarter of results. We're optimistic about the increased leasing we believe will occur toward the end of this year and into 2008 from the AWS deployments, and certainly looking forward into 2009 there should be some positives from the results of the 700 megahertz auction. An important point I would like to emphasize is notwithstanding the opportunities for growth in 2008, it is still only just about the beginning of November, and so it is difficult to forecast into 2008 with perfect clarity what leasing will look like. So I'm especially pleased with the efficiency of our capital structure that we've built over the last 4 years, which translates 2008 revenue growth that is forecasted in our outlook to be comparable to 2007 into recurring cash flow per share growth in the high end of our targeted range of 20 to 25%. That occurs because of the efficiency of our capital structure.

I reiterate the point about the integration efforts. We expect to be substantially complete with the Global Signal operation by the end of the year, and as Ben discussed we're poised to resume our practice of borrowing funds and investing in our core tower business, including stock purchases.

So with that, Operator, I'd like to turn the call over to you to organize the question-and-answer period,

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Vance Edleson with Morgan Stanley. Please go ahead.

Thanks a lot. Congrats on the quarterly results. Ben, on your share buyback, I think the approach has always made a lot of sense, buying opportunistically rather than announcing a specific amount over a specific timeframe, which would just drive the price up before you can buy. That said, we haven't seen any buybacks in some time. What's your current thinking on this as a potential use of cash? How attractive do you think the shares look now relative to the other potential uses of cash? Thanks.

Vance, thanks for the question. We did not invest any in the third ,as we were just coming under sort of our 8-times leverage target and finished the quarter at 7.7 times, but as we said in the prepared remarks, at this point clearly we're building capacity, and we've got some cash that's unspoken for at the moment. So you should expect that, you know, our appetite to continue to invest in our shares is as robust as it's ever been. You know, as you think about, now that we've got 2008 outlook outstanding before you today, and you look at the forward growth rate of 25% in recurring cash flow, we're trading at less than sort of 1 times multiple to growth rate, and so we continue to be very optimistic, and I think that's a compelling investment. I guess the other thing I would say is now that we have the '08 outlook out there with the $100 million of EBITDA growth, you know remaining leveraged at 8 times means you can borrow up to $800 million over the next 12 months, and with the 480 of recurring cash flow on top of that, and that $1,280,000,000 is a significant amount of capacity that we have over the next 12 months to invest. And even if you make certain assumptions around capital expenditures associated with the core business, like land purchases, tower builds, some smaller acquisitions, you can still come up to a very significant amount of money, maybe even approaching $1 billion that could be earmarked for purchases if we don't otherwise buy assets that bring cash flow with it. So we're still very, very interested in proceeding with our plan, and think the ability to borrow in and around, you know, 6.5% or a little less, depending where the 5-year LIBOR swap is, is still a very compelling proposition given what we think the targeted or our expected returns on the equity will be.

Okay. I appreciate the color there. And speaking of towers built or bought, just on the housekeeping front, I didn't see it in the release, could you us how many were bought and built during the quarter?

There were 42.

Okay. Great. And finally, could you just elaborate on the land purchases which you continue to spend a fair amount on. Remind us what the criteria are for making a purchase, and is it getting more or less difficult to find the accretive opportunities there? Thanks.

Yes. Vance, we continue to be very optimistic about the land purchase business. We're committing some time and resource and obviously some capital to that, and find we're continue to buy sort of and around sort of that 12 to 14 multiple, consistently, which then eliminates the ground rent and the escalation, you know, forever. So it's a very compelling return on investment from what is effective refinancing what is essentially an off balance sheet debt obligation, on balance sheet. So we think about it sort of similarly to refinancing, you know, in just the cold financial reality, but also it obviously solidifies the long-term control of the asset which we want to pursue. So I think you should expect that we're going to continue sort of at these levels and perhaps even greater if we can -- if we can find the right opportunities.

Okay. That sounds good. Thanks a lot.

Thanks.

Thank you. Our next question comes from Jonathan Atkin with RBC Capital Markets. Please go ahead.

Yes, good morning. Thanks for the color on the AWS spectrum clearing and some of the build-out or leasing activity you're starting to see. Can you talk about any notable changes in the activity level at the major carriers on their existing networks, as well as perhaps provide a perspective on Ymax?

Yes, Jonathan. You know, as I mentioned in the prepared remarks, what was a delay in 2007 on AWS clearly was the ability for those companies that had successfully bid in the auctions in 2006 to have unfettered access to that spectrum to deploy either new systems or, in the case of T-Mobile, their 3G network. There was a spectrum-clearing process that they had to undergo, essentially to move the people that were already using that spectrum, and in this case, there was private industry but also government users in that space, and on the government users' side, it took a little longer than, I think, some had perhaps originally forecast. And so it was impossible, quite frankly, for them to deploy without that interfering with the incumbent user that was being moved out and/or interference being created on their networks. So that really is well underway at this point, and that certainly is something we have visibility into as we sit here today for 2008, and can see the activity levels that those companies that are -- that were the winners of this AWS spectrum are reinforcing at this point. I think speed is of the essence in building out and adding these new applications.

With respect to the question, though, on Ymax, very clearly Jonathan, we think it is reasonable, given some of the change that has occurred at the company that is the primary advocate of the Ymax technology today, we believe it's reasonable to expect that there could be some rethinking about the deployment scheduling. Don't think that there's going to be any changes to the test markets, the original markets being deployed, and we certainly tee the activity in that particular regard, and that would be something we could be comfortable with as we look forward to 2008. But as you look as the deployment schedule and what was originally contemplated, we think it is reasonable that, given some of the management shift, there may be some rethinking relative to the pace at which those markets deploy. That's something that certainly the specific carrier in question is going to be asked on their call and certainly we'll have their perspectives on it and we will be listening carefully. But it was that one particular element that as we looked forward into 2008, we didn't have enough visibility to be comfortable with that in the outlook.

And then in terms of conventional, you know, network activity by the big four, any changes recently compared to, say, the first half of the year?

What's interesting is -- we try not to get into too much specific detail, Jonathan, about each specific carrier, but what I would say is the most recent data -- wireless data service trends are, quite frankly, being manifested in some of what we see these carriers are planning for 2008. In essence, the carriers are -- the other big four carriers are very definitely committed to ensuring that the wireless data experience that their customers have is going to be as robust as what they've been trying to do on the voice side of the equation, and that does require additional build-out. What we're beginning to see is there is some capacity-building taking place to ensure that geographic areas that currently have EVDO or UMTS systems are, in fact, enhanced, and some additional expansion into markets that don't have those technologies deployed currently. A little more of the capacity side of the equation at this juncture than pure expansion into new markets, but there still is a priority set of new markets having 3G deployed from the outset. So that, I think, is going to be a continuing trend into 2008, and with one of the carriers, they've been fairly consistent. They do pretty much the same level of activity quarter after quarter after quarter, so I wouldn't expect too much of a ramp-up in their case, but another one of our big four customers, I would expect to see more activity in 2008 than 2007. We're just waiting to see what their kind of final 2008 budgets look like as we then continue to prepare for the New Year.

Briefly for Ben, the '07 EBITDA guidance was lowered nominally compared to the higher tower revenue and tower cash flow guidance i assume this is services related, but can you elaborate a little on that?

It is services related and some may have gotten a little confused and thought it was G&A. It's not. It's services. It's the ramping of services we'd expected from Q3 to Q4. I realize we don't give you the guidance so you don't have that visibility. It is still ramping quarter to quarter, in fact not insignificantly, but not going to ramp from the second quarter to the fourth quarter that we initially thought. And that's our best judgment of kind of how we're going to finish the year. So it's going to ramp, you know, sort of in the range of 2 or $3 million instead of 4 of $5 million dollars, and that's the difference in why once we get into the fourth quarter we have to trim the high end of that EBITDA range.

Margins in that business are pretty steady?

Yes. It's purely an activity level. It is growing and has grown, as we expected it would, across the second half of the year, not insignificantly. But again, based upon initial expectations from the beginning of 2007, going to come in a little light in terms of pace where you finish the year.

Thank you.

Thank you. Next question comes from Jason Armstrong with Goldman Sachs. Please go ahead.

Great. Thanks. Good morning. A couple questions. First, just how to think about balance sheet positioning and sort of strategic opportunities in light of the comments about credit markets, sort of 70 to 100 basis points wider for your method of financing, at least one large transaction that's sitting out there. If you stay around 8 times and sort of buy back shares, do land acquisitions, et cetera, do you still have the willingness and ability to extend the balance sheet for the right deal and maybe put some parameters behind that? Then second question, on the '08 guidance, just in terms of how it was constructed from an EBITDA perspective, you know, $100 million increase in revs, $100 million increase in EBITDA, just how you felt about flow-through margins versus some of the expense pressure that goes away related to Modeo or Global Signal synergies, et cetera.

All right, Jason. Sure. Let me take both of those in order, and John can certainly jump in.

On the balance sheet positioning, you know, we -- I think it's very important to emphasize, as a practice, we do not put in our outlook the expected deployment of this additional capacity that I've talked about. So it's -- you know, the round numbers of, call it $1,280,000,000, we just talked about on a previous question, again the 8 times debt capacity at the $100 million of growth in the recurring cash flow. So we don't forecast that. I guess you could say we could have, and we would have had more revenue or EBITDA or alternatively recurring cash flow per share, if you're shrinking the share count, but we don't. But our view around the credit markets are the continued ability to borrow in and around 6.5% on a long-term basis is still very compelling with what we see as the long-term growth prospect certainly of our own stock, based upon our own ability to drive recurring cash per share growth, as we demonstrated in this outlook, and our longer-term views, which are still unchanged and consistent with our long-term statement of 20 to 25% growth.

To the extent we would deviate from that and approach an asset acquisition, particularly in size, we would have to believe more of the same, and that that would be more compelling, more attractive to the long-term growth and it would likely come at a lower initial multiple or higher initial yield than, by definition, buying our own stock, unless we were paying a public multiple, which we wouldn't expect. So you would probably come with more short-term impact in terms of benefit against the cost of debt in the short term, and so we remain very engaged and committed, but I wouldn't suggest that the cost of debt hasn't -- hasn't certainly impacted the way we would have analyzed an acquisition. I think we certainly look at that, because again, at a given cost of debt, it should ultimately impact, you know, how you think about an acquisition, at least at the margin. I hope that answers that question.

On the EBITDA construction, the easiest way to think about that is take the fourth quarter -- annualized sort of fourth quarter either revenue or EBITDA, and roll forward $50 million, which just would be the half year convention on the $100 million year-over-year is sort of how you get to that number. While it's a little unusual for us to forecast 100% incremental margin, because as we've said for many years, that's not, long-term, probably sustainable, certainly in 2008 we believe it's sustainable, because we've incurred expenses in 2007 that are not recurring. So when you look at the year-over-year benefit you're, we think, well within reason to expect that costs will run pretty flat. Maybe there is even some room in that. That is again a very early read on 2008. But we think we're within reason to say costs are going to run flat compared to full year 2007, and that's how we get to the 100% incremental margin, and that's part of the benefit of, you know, the synergies that we've wound through in 2007 that you then -- you don't have obviously on the run rate basis, you get the benefit for the full year 2008.

Okay. Great. That's helpful. Just on the revenue side, sort of what you just talked about constructing the revenue piece, can you just help maybe frame what the upside to guidance might be? I mean, there's been comments on the call suggesting, you know, AWS, you're actually seeing in the pipeline one --

Yes. I think it's importantly -- I'm happy to do that, and I'll do it this way. Again the theme we want to leave you with is at this level of 8% revenue growth, 14% EBITDA growth, which is consistent revenue growth to 2007, we're -- you know, we're forecasting the high end of our recurring cash flow growth per share of 25%. Now some out there had models -- and by the way that's pretty consistent. That $100 million of revenue growth is pretty consistent with what we've talked about in prior calls and other conferences, et cetera. Some had models out there that were substantially above that for expectations for 2008.

I just wanted to give you a little flavor on how the numbers would, in fact, work. For example, if revenue -- if leasing were up 20% over 2007 -- so if we saw a 20% impact on the positive side for the full year, again, starting January 1st, so you get the full-year impact, you know, that would be in and around $15 million to $16 million of outperformance. Okay. So that's the order of magnitude, if you want to go up 20%. Some of the models I saw would have sort of implied 50% increase year-over-year, in order to back into the numbers. And, you know, in all good faith sitting here at the beginning of November, we can't tell you we see that today, a 50% increase. We just don't see it. Is there some upside? Likely it will come staggered throughout the year, so you'll get some fraction if it occurs at all. But I just thought it would be helpful to walk everybody through the unit math, again sort of up that 20% full year would be 15 to $16 million and if it occurred half year, it would be half that.

So anyway, I think continued recognition maybe on everybody's part that the volatility on the up and the down from leasing results, many of you've heard me say this in conferences, is just not there. Given the run rates we have today and the embedded base of free cash flow, recurring cash flow, you know, leasing can go up or down 20% and you frankly hardly feel it.

That's helpful, Ben. Thanks a lot.

Thank you. Our next question comes from David Barden with Banc of America. Please go ahead.

Thanks a lot. And I apologize, I would like to follow up on that point, Ben. I guess looking at the adjusted EBITDA guidance in '08. This is not the first time we've had these conversations about conservative expectations at the beginning of the year and then kind of things unfolding more positively. But, you know, looking back to 2006 when Crown Castle was a stand-alone company, adjusted EBITDA quarter to quarter kind of was up 6 to $7 million in any given quarter that year, and then obviously we had an issue with Global Signal acquisition, but in third quarter EBITDA was up $10 million sequentially and fourth quarter you are guiding up to $9 million sequentially. If I annualize the fourth quarter number, the sequential rate of growth in EBITDA -- adjusted EBITDA would have to fall below $4 million in each of the coming four quarters. So I guess when you guys say that you believe that that's going to happen, I think it begs the question, you know, why will it?

It's very dangerous to annualize fourth quarter, for example. When you start getting into shortcut,s I'm happy to walk you through as much detail as you can tolerate. But, for example, we're annualizing -- if you annualize fourth quarter -- and that's a shortcut method that I would suggest is easy, but remember you're annualizing off of a ramped-up service margin that now you're going to annualize for full year 2008. So it does sort of make that challenging. But we wouldn't -- again we don't give you this guidance. I know you're flying blind. But we wouldn't necessarily believe that you would annualize service margin for the full year 2008 off of fourth quarter 2007. That would be in and around, you know, a substantial increase in service margin that we expected to deliver this year versus next year. So -- and again, we're forecasting -- again, I know you can't see this. We're forecasting service margins to be roughly comparable to 2007. So it gets -- it gets a little bit challenging.

I think the simplest thing to do is sort of go to -- because EBITDA has G&A and service margin impacting it, the simplest thing to do is sort of go to site rental revenue and site rental margin and say, "Okay, what does that look like?" And that $100 million of growth in both those numbers is, we believe, consistent with kind of what we said and what we've delivered in 2007. And again, could it be higher? Yes, it could be. But I believe it's important to frame that order of magnitude around what percentage of leasing do you expect to out perform if any of these other events were to happen early enough in the year to make it impactful.

Perfect. And just to follow up again on -- it sounded like an assertion that, you know, there's an appetite to go back into the buyback market, but obviously there's other decisions that need to be made from, you know, kind of accepting or rejecting asset opportunities that are out there today. You know, I guess what I heard is there are decisions or actions that might be taken later, but is this sort of an '08 event? Do you want to have a Board meeting before decisions are made, or are you guys in a position to take action and to make decisions today?

Are you referring to the deployment of the capital in general? So maybe around share purchases or ac -- acquisitions?

Yes. Obviously there's been, you know, a number of reports about the T-Mobile assets out there, and that, you know, there's a second round of bidding that's occurring currently. I mean, do you have to wait to kind of see how that plays out before you're in the market, maybe looking at equity buybacks, or can you --

We're not going to get into what we're doing in particular, and I would say just from a corporate governance matter we have ready access to our Board and can get decisions, you know, timely as required, and that's sort of always been our approach, but in terms of commenting specifically in terms of which direction we may be leaning, just not going to get into that at this point. I just can't.

Thanks, Ben.

Okay.

Thank you. The next question comes from Brett Feldman with Lehman Brothers. Please go ahead.

Thanks for taking my question. I just wanted to drill in a little more into the cost structure. I know you sort of alluded to it earlier, but let's just say your costs of services per tower, they seem to have stabilized on a monthly basis relative to the prior quarter. Are we at a new run rate level now where we can look at that and begin to extrapolate that forward based on historical trends, or is there any reason why that might change in the near term?

No. I think Brett we are comfortable with the run rates, and I would tell you we're probably not done working with them on the positives. But I think we're very comfortable with these run rates, and that would be probably a pretty good place to start for, you know, as you roll forward.

Other than purchasing more land, how else do you get leverage on that cost item?

Well, we're continuing to get, you know, better and more efficient around repairs and maintenance activities, which is the bulk of our spend there after ground lease expense. You know, you look at ground lease expense in and around $300 million a year for the overall company, repairs and maintenance are in and around 45 to $50 million a year in the new combined company. You have property taxes, that is an ongoing process to try and mitigate property taxes. So those are your biggest items. You look at head count, salary, sort of SG&A benefits, all of that combined, you know, is give or take $135 million on a $550 million total cost structure, which includes ground leases.

So, you know, there's things that you can certainly do around being efficient, and we expect to get that. That is, you know, part and parcel the reason for the 100% incremental margin forecast. But again, most of the hundred percent margin comes from, again, expenses that were incurred in '07, we don't think will replicate in '08. Therefore, you get the nice run rate benefit year to year. But I do expect as we go through time, we will find more places to become more efficient, and we would see run rates -- you know, I have an expectation maybe you'll see them come down on a constant asset basis.

That's great. And did you say earlier you had been buying your land at 12 to 14 times? Did I get that right?

Yes. That's generally the average. I mean, it depends on the transaction, but that's in and around that average, and we would certainly continue to do that on -- it's a very favorable way to refinance an off balance sheet obligation on balance sheet, if you will.

What about pricing of the private tower assets out there? Have you seen them change much? Do you think they're getting to the level where there are maybe not as many opportunities as you had previously seen?

There are still opportunities. We still see opportunities, and we are actively looking at pretty much everything in the market today. Didn't really do anything of any significance in the third quarter, but we have a pipeline at any given time that we are pursuing, and we employ sort of all of our internal tools in terms of looking at long-term leasing demand against run rates that exist on the sites that are there today. You know, a mature site with lots of revenue per tower, you might expect to come at a lower multiple than, you know, an immature site, where you've got a lot of lease-up potential. So we're constantly trying to manage that balance, but there's an active pipeline, and we've got a team working on it, and I would expect part of our capital investment allocation in 2008 will go to those smaller-type acquisitions.

Okay. And then one sort of off-beat question here. One of your customers actually indicated that some of the cash equivalence they had in their balance sheet was maybe not as liquid as their broker had led them to believe that they were. Considering what's gone on in some parts of the credit markets and the money markets, I'm just curious how do you manage -- when you have cash in the balance sheet, is that cash or do you have a lot of it in cash equivalence and marketable securities? And if so, have you had any trouble liquidating those securities?

Yes. It's in overnight investments, and they are all A1/P1-rated paper, and we've had absolutely no problem rolling any of that over or had any price deterioration in any of our investments, and we have -- we have double-checked that after that occurrence, like probably ever corporate in America, and have found very pleasingly that our investor -- our investments are, in fact, in compliance with our Board authorization, as you would expect they would be, and we've had absolutely no issue there.

Okay. So you didn't have to reallocate something that you thought was a short-term item into a long-term asset this quarter?

Not at all. Nothing here.

Okay. Thanks, guys.

Thank you. Our next question comes from Rick Prentiss with Raymond James & Associates. Please go ahead.

Good morning, guys. A couple questions for you. I want to keep drilling down I guess on the horse everybody was beating a little bit there, the '08 revenue guidance. I appreciate your comment about, you know, even if you see pretty big revenue increases it's, you know, 15 to $16 million Delta on the revenue side. But as we look at it, I think -- and maybe just to get the conservative item handled up front, historically -- I've followed you guys for a long time, kind of maybe 1% swing, looks like what we saw in the '07 time frame to kind of keep year-over-year revenue growth, able to take it up quarter over quarter. Any thoughts you guys are getting more conservative than kind of your historical trends?

No. I want to be careful about that. We want to make sure we leave you with the right notion. We are not timid or have a sequentially more negative view than we had on the last call. I think that's very important. Anybody that would take away a view that we are worried about 2008 would be mis-stating our view. We,, you know, as you suggest that 1% revenue growth Delta, could it be there? Sure it could, if that activity were to manifest itself early enough in the year. But as we sit here today, again what could you get comfortable in good faith putting out there.

You know, I'll just tell you in all honesty, Rick, and for everybody listening, we had an active debate about whether or not we just widen out the range to include that 1%, when we -- we really don't have visibility into the second half of '08, so you could have put a $30 million revenue range out there instead of 15, and captured that in the upside, and maybe that would have made everybody sleep a little better at night. That's just not been our approach, frankly. We'll take kind of what we see. In our view, it's more than sufficient to drive the kind of returns that we have committed to ourselves and to the street to provide. And if it's there, then we'll adjust that expectation across the balance of the year. It's just an approach. I mean, others can take a different approach and put a wider range up there, and then, you know, you work to the higher range over the course of the year.

I think the one point to echo as well, Rick, is that when we have talked on conference calls past, we talk about the 1.25 indicated need for our towers in the form of new tenants from Project South Point. The only downside to that entire forecasting methodology is we can't tell you with absolute precision what years those are all going to -- those are all going to be taken down. There's a need for this 1.25 tenants, we believe, but as far as what the rate and what the pace of that leasing is going to be from year to year, that's of course much more difficult to predict, and when you look across the wireless carrier landscape, what you find is -- and you and many others certainly follow the wireless carriers as you do the tower companies -- is that there's really only one big wireless carrier that is incredibly consistent in chair capital spend on new sites year to year and quarter to quarter. So you can look to them for what you would expect they will expect to do in the new year, but many other carriers have more of a fits and starts kind of a capital program relative to the kinds of activities that are going to impact tower leasing. And so in some years there is just a flurry of activity, and then there seems to be a digestion and consideration of what that activity should be following that flurry, and they slow down a little bit. And then it picks up again.

What's difficult for us is because of the pace changes, what we do is -- and this is entirely consistent with how we've handled it in prior years, is we give you an outlook here in this October call for the New Year, and give an indication as to whether or not we see it getting worse than the current year we've just experienced or, because we have absolutely visibility, significantly better. But for the most part, we have reiterated the point that it's importantly for us to wait until the capital budgets for the wireless carriers for the New Year have been released, and have also been distributed to the field areas so we can begin to start seeing with more granularity exactly what's going to happen in the New Year.

So as we look forward to 2008, as Ben pointed out, we certainly don't see the year being worse than 2007. There are certainly things that are going on that would suggest it could be a better year. But we don't have all of the carriers through their budget process and distributing their capital budgets, and as such, we forecasted 2008 on the basis of similar growth in top-line revenue and leasing as was the case in 2007, and then, by virtue of the efficiencies through the integration efforts coming to a close and so forth, were able to translate that rather effectively 100% to EBITDA and, of course, growth on capital per share on the high end of the 20 to 25% range. And that is a consistent methodology to what we've done in prior years.

To just continue down that path a little further if I may, John when you mentioned -- and let's just name names, Sprint, executive change, could be rethinking their deployment. Did you guys pull out of your '08 thought process for your numbers all launches for Sprint Ymax except for the DC/Chicago data markets?

The short answer to that, Rick, is we are waiting for more clarity from Sprint as to what the specific deployment schedule beyond these beta markets will be before we're going to incorporate that into our outlook for 2008. So yes, we are not -- we are not focusing on large scale Ymax deployments in our outlook until such time as we get greater visibility from Sprint itself.

Okay. That helps a great deal, because I think a lot of us maybe were thinking Sprint Ymax could be, say, 3,000 cell sites in '08. If you guys got say a 20% share, say 12,000 a year, that could be a $7 million kind of revenue swing if you pulled that out waiting to see who's running Sprint, is the Board committed to building this out, does Clearwire pick it up, et cetera, so that is out of your numbers right now?

That's right.

Okay. And then just a final question, I swear, on the guidance. A lot of people have been very spooked about all the equipment companies that have been pre-releasing, warning, firing 4,000 more people. Talk to us a little bit about what we're seeing from the equipment companies that have been pre-releasing, warning firing 4,000 people at Lucent/Alcatel. Talk to us a little bit about what we're seeing from the equipment guys and their concern about getting equipment sales into the carriers versus your comfort that '08 is no worse than '07 and hopefully better?

I think, Rick as you know there's a pretty big difference between the electronics infrastructure providers and the level of competition in that space between new foreign electronics firms, some of the equipment now coming out of China that's adding to the mix of American and European providers of the electronics, and the whole -- the whole side of the -- tower side of the equation. You know, I think that part of the issue clearly, and they will be much more eloquent in their description of what is going on that I can be, is just a level of competition on the electronics side that otherwise impacts the economics associated with deploying new applications on existing networks or new networks to begin with, just in terms of pricing and margins on that particular side of the business.

You know, the trends associated with growth on the wireless industry are continuing, as I had indicated before in my prepared comments, with the move ever-increasing to deploy robust data networks. The need for robust deployments is there, but you can deploy these sites less expensively on the electronics side than you could originally because of what's going on in that space over the years, and that's certainly a backdrop perhaps to some of the announcements that you see coming from electronics manufacturers. But by the same token, the need for vertical height when you're deploying either a new network or whether you're deploying an enhancement to an existing network for things like data is an absolute, and the need for towers as such is an absolute, and the ability to build towers in this country is not getting any easier year after year and quarter to quarter, and as such, I think that the two sectors are differentiated, and the reason why the tower space has a different dynamic than you would see on the electronics infrastructure side.

Yes. It's nice having your revenue for '08 lot booked as opposed to being an equipment company who gets to Day 90 and maybe still need to make a quarter.

Yes, it is.

One final question for Ben. On the investment, I think I understood pretty loud and clear that you guys have not included the ability to put the balance sheet to work into your guidance. Is it fair to kind of bracket it to say when you put your balance sheet to work, whether it's stock, land, buy, build, that we could see possibly 5, 10% move in the free cash flow per share as you deploy that kind of balance sheet to put it to work versus the $1.70 per share?

The way the math would work is the cash that you would put to work, as opposed to borrowings, definitely obviously brings that number up in the vicinity of, you know -- if you think about what you're doing with it, $0.03 to $0.05, which puts it close to 30% growth year-over-year, you know, if you were to do that. When you start borrowing, as we keep agonizing over on all these calls in the quarter, in the short-term impact the is negative, depending on what you bought with it. Obviously if you're borrowing at 6.5% and you're buying stock, you know, on a 20-plus multiple, then it's short-term diluted to those numbers, and so the year -- you know, the 2008 full-year number, depending on the mix of cash versus borrowings, could move around a few pennies up or down depending on the mix.

I guess I should have talked to '09, because we're valuing you guys off of '09 right now and obviously the short-term effect would hopefully then play out as you --

Just like you're seeing in the '08 numbers where the '07 dilution effect of the borrowings is obviously washed through, so the '08 numbers are that much stronger.

Okay. Good luck, guys.

Thanks, Rick.

Thank you. Next question comes from Ray Powell with Wachovia Securities. Please go ahead.

Hi, guys, thanks for taking the question. I'm not going to ask about guidance, but I am just going to ask about the timing of leasing demands going into 2008, and specifically if I look back over 2007 trends, we saw leasing demand increase each quarter, starting off pretty small at the beginning of the year and then increasing, particularly going into Q4. So as you are looking at 2008, do you guys think that will be the same case again next year, or do you think leasing demand will be more evenly distributed, particularly as AT&T and T-Mobile appear to be getting more aggressive on their 3G overlays?

Ray, I think based on what we're seeing in the fourth quarter, that 2008 is going to roll out differently than 2007, where, as you point out, we had anticipated -- and it came true -- that 2007 was going to be characterized as a back-end loaded year, as various different activities were being sorted out, most specifically the AWS clearing. That being well underway, as we've discussed, I think what you'll see in 2008 is more of the leasing activity, at least from where we see it, occurring in the first half, and then perhaps slowing a little bit towards the second half as people are otherwise focusing more on what they're going to be doing with the 700 megahertz spectrum, however that plays out, whoever captures that. That will start to become part of their longer-term capital planning, and they may, in fact, delay some activity towards the back half of the year as they start to focus on what does that 700 megahertz do for them relative to any enhancements that they were planning for their networks, because it will. There won't be electronics necessarily available, nor will that spectrum have been cleared by the second laugh of 2008. As I discussed the broadcasters don't have to clear out until 2009, but if you are a winner of that particular spectrum in whatever block you might be a winner, it could have an impact.

So I think 2008is going to roll out a little differently, and will be more in the first part than perhaps in the second half, and that's certainly how we're -- how we're fundamentally looking at the year.

Okay. That makes a lot of sense. And then just kind of on top of that, I guess next year and even longer term, where do you see the bigger driver of growth? Is it going to be new tenants coming on to the towers, or leasing amendments from existing tenants?

You know, that's a great question, Ray, and, you know, what was interesting was in the third quarter, you know, amendments had risen pretty much in the first half of this year and certainly in 2006, where it was running close to 40% of total new leasing activity. In the third quarter amendments were 20% of our total new leasing activity. And so that was back down to what has been kind of a historical average pre-2006, where new leasing activity, new installations on towers were the much larger percentage, the 80%, and amendments were 20%, and then it built the other way, and now it is coming bah back to what the previous historical trends were.

As we move forward, I think that what we will probably be seeing is a slight increase in the percentage on amendments. I think it could be upwards of 30% as opposed to the 20% we're seeing right now, as some of these networks are simply enhancing existing sites with new antennas and lines for new applications. But I think that it's not going to quite to the 60/40 split we were seeing in 2006, and that's because I think that a lot of the effort today that wireless carriers are looking at in enhancing their networks for data is around infield capacity. For these high bandwidth-intensive applications, there is a need for a very robust signal, number one, and, as these [minute] of use trends continue, the need for capacity. That's not something you necessarily get with just simply enhancing an existing site. That's something you get with splitting a site and adding a new one.

So I think that whereas it could tick up a little bit, new licensing activity will be more in the 70% range than this 80%.

Okay. Great. Thank you very much.

Thank you. Our next question comes from Michael Rollins with Citigroup. Please go ahead.

Hi. Thank you. Good morning. Just a quick follow-up. I realize you already explained a lot on the incremental revenue growth assumptions in your guidance, but I guess one thing that I think is a little surprising is if you look at what you described when you bought Global Signal, the idea of improving performance over time and being accretive in future periods, why wouldn't, you know, all other things being equal in terms of site leasing activity, your ability to grow revenue year-over-year be better a year after completing the Global Signal acquisition? Presumably you would have running at a much fuller speed than when you bought the property. You'd still be executing your core business, Australia, you know, presumably be still be doing what you thought. Why wouldn't there be accretion in the incremental amount of revenue from that Global Signal acquisition? Thanks.

Mike, the math -- you're exactly correct. You know, on a given level of demand, given the lower run rates with Global Signal, you would expect there to be an accretion to the growth rate, and in fact, we probably don't have that level of granularity for our '08 view to be able to demonstrate that to you, but in fact, that's probably already occurring. In fact, the accretion to the growth rate, I can tell you that thus far through the year the Global Signal assets are out-performing our -- sort of our original expectation of what they would have done, and that's through the year of integration. So as you go forward, to your point, do you do better? Perhaps. But again our sales team is likely to remind me, we can't manufacture demand. And so we have done the best we can to forecast the demand we see, but your point is exactly right.

It's a good reminder that across this tower footprint, a given level of demand across the GSL assets will drive a higher growth rate than across the legacy Crown sites, and what's implied there in that 8% growth, I think, frankly is probably already contributing somewhat to that. Because remember, that $100 million of growth across, you know, an ever-increasing base would obviously bring that percentage down every year unless, you know, you're doing something -- adding assets or doing something else. But on a constant asset basis, that percentage change is going to decline every year. That's why we're trying to remind everybody to focus on the nominal numbers as much as the percentages and down until you ultimately get to the one that matters, which in our view is the percentage change in recurring cash flow per share, which sort of normalizes for everything based on how you finance the company. But, you know, I think probably the best way I could answer that is we think we are seeing that impact of the accretive growth on the global assets, and that will likely continue as we add revenue comparably to the Crown sites going forward.

Thank you.

Thank you. And our final question comes from David Janazzo with Merrill Lynch. Please go ahead.

Good morning. Ben, you mentioned the significant services ramp. How reliable an indicator is that for site rental revenues, and how do you factor that into your outlook?

It's pretty reliable. We clearly see that as, you know, the pre-activity that is attached to an application that ultimately is the lease that commences in our accounting system, and installs on our sites. And so that ramp, we continue to note throughout Q3 and Q4, again not quite at the pace we'd initially expected, like I mentioned earlier, but still ramping, and not insignificantly, through the year. So, you know, that does beg the question, then,, I think, that's on many of your minds, if that's the case in Q4, why doesn't that sort of roll forward into Q1, Q2 -- you know, into 2008? We think it does. Again it gets a little fuzzy in the second half of 2008, as John was just mentioning, and that's where you get a little bit, you know, more tentative about putting that same level of sort of fourth quarter activity all the way through 2008. It's impossible to do that with any certainty, today. Again, we could have just widened out the range with less confidence around the number, but we decided to take this approach, but it is definitely an indicator of activity.

Thank you.

All right. Well, with that, I think what we'll do is conclude the call. We're looking forward to finishing up the year strong, and reporting to you in the first quarter how we did for the full year and any additional visibility that we have at that juncture in 2008, since it certainly is the topic on many people's minds. But we they thank you all for joining us on the call today and look forward to talking to you again in the near future.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. We do thank you again for your participation and at this time, you may disconnect.